Family businesses in strong position to survive downturn

The report identifies that traits and characteristics which can help businesses through a downturn – such as long-term approach, adversity to risk, lower financial leverage and a closely knitted management team – are commonly displayed in family businesses.

With the number of businesses filing for administration up by 124 per cent in the final three months of last year, the report indicates that businesses could improve their chances of survival by adopting elements of the family business model and its values.

The global survey – the eighth report in the Barclays Wealth Insights series – polled 2,300 wealthy investors, of which almost 300 were family businesses.

Risk averse and less driven by short-term financial returns

Comparisons between family and non-family businesses’ motivations were telling, revealing that family businesses were likely to have a conservative strategy.

Family businesses were less likely to thrive on risk – 22 per cent said the enjoyment of risk was their most important motivation, compared to 30 per cent for non-family businesses.

Family business respondents demonstrated that their motivations were less driven by financial returns than non-family businesses, suggesting that they take a more holistic view. Only 42 per cent identified the enjoyment of making money as a motivation, compared to 52 per cent of other businesses.

Commentators in the report agreed that the combination of these traits can help create strong foundations for coping with a downturn, leading to sustainable success for businesses.

Long-term approach

One of the strongest themes running throughout the report was the ability of family businesses to take a long-term approach without the pressure of shareholders looking for immediate returns. This was cited by 38 per cent of respondents as being the most important advantage of being a family business, suggesting that family businesses will be well equipped to look beyond the current economic downturn and invest for the future.

The emphasis family businesses place on a long-term view is further emphasised in the report. Only 10 per cent said that they have or would consider selling their business, compared with 22 per cent of non-family business owners who were questioned.

Respondents identified the strong support network from family members (48 per cent), followed by the values and ethos shared between family members (39 per cent) as the two most important advantages of being a family business. Experts in the report go on to highlight that this strong support network allows the family to support itself in the long-term.

Mark Kibblewhite, Managing Director of Barclays Wealth commented: “This report gives a very interesting insight into the mentality of family businesses and a lot can be learnt from them.”

“Businesses can often be forced into knee-jerk reactions when faced with a challenging and unfamiliar environment, but this can sometimes exacerbate problems. A longer term view, less debt and an experienced management team are just a few of the factors which provide stability and minimise vulnerability in testing times.”

Serving communities through the downturn

The study also suggests that family businesses will play a key role in community support during the downturn, when personal giving and wider corporate contributions are heavily impacting charities, foundations and NGOs. Family businesses cited their most important motivation as the ability to help others (55 per cent), compared to non-family businesses at 39 per cent.

The critical role that family businesses play in their communities was underlined further in the report. Commentators suggested that family businesses were less likely to make redundancies, seeking other cost saving measures such as reducing salaries and suspending dividends instead.

Mark Kibblewhite continues: “For a long time – regardless of their geographical origin – family businesses have thrived by becoming an important part of the community, town or region they were founded in.

This remains the case today and helps create goodwill between them, their employees, suppliers and other stakeholders. When times are tough, these types of relationship are incredibly valuable.”

Åsa Björnberg, family business researcher at London Business School agrees with the report’s findings: “Family firms are uniquely positioned to create a competitive advantage through their legacy. By promoting emotional ownership in the next generation – that is, the bond between the individual and the family business – business-owning families are effectively creating a specific form of social capital. This resource feeds into the culture of the firm, providing the link between the past and the future, enabling stewardship, shareholder support and a long-term vision.”